Let’s talk about foreclosures in real estate.
I’ve been seeing a divide about this. Some people say that there are a bunch of foreclosures out there that we aren’t aware of and are about to happen. Others deny it.
So, as usual, we look at the data.
Let’s take a look at several articles.
The first one is an article by The Motley Fool. The title goes “Foreclosures Are Up 700%. Is This a Red Flag for the Housing Market?”
I saw this title and it caught my attention. I’ve been in real estate for 20 years and in the top 2% in the world, and I was like “did I miss something? What happened? This is catching me by surprise.”
But this is what the article says at the end.
According to Motley Fool, “Signs of distress are definitely there, but they're nowhere near alarming levels and at this time certainly aren't a red flag for a correction. The real estate market is still seeing fierce competition and high demand thanks to a housing shortage and low-interest rates. The Federal Reserve has stated it will be raising rates to combat inflation, which could curtail the rapid growth the market is seeing. But for now, all signs point to the housing market staying red-hot.”
I read this and thought if they are nowhere near alarming levels, why would you put such an alarming title?
Next is this article by Sofi, which came out on March 22. It reports the top 50 states with the highest foreclosure rates in February of 2022.
I am based in California, so I looked for California on the list, and we ranked at 10.
The top three ranks are taken by Ohio (3rd), Illinois (2nd), and New Jersey at number one.
If you read through this article, you will see the numbers aren’t that bad.
And Market Watch released an article (March 19) titled “Foreclosures are on the rise. Here’s what that says about the housing market.”
According to Market Watch, “pros say, the housing market is still going strong, thanks in part to mortgage interest rates that are still near record lows (though they have ticked up recently).”
Also, this article quotes Ratiu saying that the foreclosure rate in January is still 40% below the value before the pandemic. And Lewis says that since demand exceeds the supply by a lot, no one will get a foreclosure for cheap because even foreclosures get multiple offers.
So, if you are looking for a foreclosure, you probably are not going to get one.
Banks aren’t stupid. If they get a foreclosure, they will sell it at market value price because they can. It’s that type of market. Besides, chances are, anyone who’s going into foreclosure, or thinks they are, probably has equity so they don’t need to. This is why they are not on the rise.
The Real Deal article that came out on April 22 is titled “Foreclosures surge 181% to highest levels since March 2020.”
According to Real Deal, “Despite the rise in activity, Sharga said the growth will likely continue, but the country likely won’t see pre-pandemic levels ‘until the end of the year at the earliest, unless the economy takes a significant turn for the worse.’”
So, we are still good.
It is common for the media to sensationalize their titles because they want to catch the attention of the audience and have them click on their titles first.
However, this causes some level of fear and panic for people, especially those who didn’t get to read the whole article to the end.
If you want objectivity, you have to look at the data. This is the article from Black Knight that everyone has been referencing regarding this topic, it came out on April 25th.
This is the one you would want to jump into to get a factual look at what is happening with the foreclosures.
It has beautiful statistics presented, so if you want to, give it a read. But I want to highlight a few things from the article.
According to Black Knight, “the national delinquency rate dropped by more than half a percentage point in March, falling to 2.84% and shattering the previous record low of 3.22% in January 2020.”
But, “robust employment, continued student loan deferrals, strong post-forbearance performance, and millions of refinancing into record-low interest rates have all helped put downward pressure on delinquency rates,” the article says.
We talked about how people are going to stay longer in their homes, as the rates keep going up. Because it doesn’t make sense for them to sell, and move to another house at a 7% interest rate, when they already have a home at a 2-3% interest rate.
And according to Black Knight, serious delinquencies have improved by 12%, the strongest single-month improvement in two decades. They are still above pre-pandemic levels by 70%, but it is a good sign. When people start being more responsible about paying their mortgages, that means they can afford it.
The Fed raised the rates, and we don’t know how high up it is gonna go this year. We saw how it affected the mortgage rates.
But, the demand is still there. Even people in California, despite being ranked 10 in foreclosure rates in February this year, are still buying real estate. According to a WSJ article, Reese Witherspoon recently bought an English country-style home just 45 minutes away from me, and she probably bought that all cash.
The bottom line is that things are still selling.